January Starts The Year With a Bang… But Ends with a Whimper

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.
U.S. stocks finished mixed this past week, with the S&P 500 ending pretty much where it started.
That said, the major U.S. indexes ended the month of January with big gains. In what was mostly a slow and steady climb, the Dow Jones Industrial Average rose 3.4% in January and the S&P 500 Index gained 4.4%, marking the best performance for both indexes to open a year since 1997. The news from global stock markets was even better. Emerging markets also came roaring back with the MSCI Emerging Markets Index rising a whopping 11.04% for the month.
The January news coming out of Europe this week was generally positive. Although the 17th summit in the last two years between European leaders in Brussels yielded no agreement over how Greece would receive its next bailout installment, the European Union (EU) did agree on a new fiscal discipline treaty. This preliminary deal requires each country to balance its budget so that its deficit will not exceed 0.5% of its nominal GDP. (By way of comparison, the U.S. deficit this year is expected to be 7% of its nominal GDP). The real question — especially among the Germans — is how the agreement actually will be enforced. For now, investors are giving the EU the benefit of the doubt.
With its current heavy weighting in rallying global stocks, your Alpha Investor Letter portfolio holdings outpaced the flat S&P 500 by a solid margin last week. Freeport McMoran Copper & Gold Inc. (FCX) rose 5.09% and the iShares Singapore ETF (EWS) followed with a gain of 3.08%. The Market Vectors Russia ETF (RSX), Las Vegas Sands Corp. (LVS) and WisdomTree Japan SmallCap Dividend Fund (DFJ) all gained over 2% for the course of the week. Ford Motor Co. (F) and Market Vectors Indonesia Index ETF (IDX) were the weakest performers in an otherwise solid portfolio.
Overall, you hold a diverse mix of both U.S. and global plays that should hold you in good stead for the coming months. The historical statistics for the market’s performance, following a strong January, are encouraging. A positive January has led to a positive three-month return in the U.S. market 20 out of 23 times — all but once in the past 70 years. And the potential for greater upside is all the more amplified among your more volatile global holdings. Although I am still expecting a long overdue pullback at some point, I am positive on the markets until we hit the “sell in May, and go away” period.

Portfolio Update

WisdomTree Japan SmallCap Dividend Fund (DFJ) jumped 2.39% over the past week. The Japanese government is sticking with its goal to balance the budget by 2020 — just eight years from now. This is no small feat, considering the country suffered its devastating earthquake just one year ago. DFJ is a BUY.
Las Vegas Sands Corp. (LVS) rose 2.48%. After rocketing nearly 15% for the month, the company’s stock price has steadied recently as investors await its earnings report on Feb 2. There is also news that the board of directors may approve a $1.00/share “special dividend” payout within the next few days. LVS is a BUY.
MSCI South Korea Index (EWY) came in flat, pulling back just 0.30%. EWY spent the week furiously testing its 200-day moving average. Watch this “battle” closely as a definitive rise above its moving average is a bullish signal. EWY is a BUY.
MSCI Malaysia Index (EWM) moved up 1.15%. EWM has had a tremendous run since Christmas and is now testing its 200-day moving average. Second only to Indonesia, Malaysia was the best-performing market in Asia for 2011. EWM is a BUY.
Market Vectors Russia ETF (RSX) gained 2.86% last week. The Russian statistical agency Rosstat reported that Russia’s 2011 gross domestic product (GDP) came in at 4.3% year-over-year. RSX is a BUY.
iShares JPMorgan USD Emerging Markets Bond (EMB) rose 1.44% over the past five trading days. EMB has performed well since forming a bottom just three weeks ago. Since its 2007 inception, EMB has attracted a huge number of investors, taking in over $3.5 billion in assets. EMB is a BUY.
Market Vectors Indonesia Index ETF (IDX) fell 3.09%. IDX pulled back over the past week after advancing through its 200-day moving average. To put Indonesia’s 2011 growth into perspective, its gross domestic product (GDP) rose 6.2% to $823 billion — nearly four times larger than the GDP of Hong Kong. IDX is a BUY.
iShares Singapore ETF (EWS) gained 3.08%. EWS is up 10.2% so far this year — more than double the stellar performance of the U.S. markets. EWS is a BUY.
Berkshire Hathaway (BRK-B) was flat last week, losing just 0.14%. Strangely enough, for all the fabulous 2012 gains in most of your other positions, the “Oracle of Omaha” seems to have fared somewhat below par. Of course, had you invested a mere $10,000 with Mr. Buffett back in 1965, you would have roughly $50 million dollars in your bank account today. BRK-B is a BUY.
Listed Private Equity ETF (PSP) increased 1.14% over the past five trading days. Private equity firms have been quietly buying up massive numbers of distressed and foreclosed homes lately. In fact, several large private equity firms have plans to buy $1 billion each in single-family rental homes by the year 2016. Buying in volumes such as these will contribute greatly to a recovery in real estate, and help increase the value of investment funds managed by the private equity firms. PSP is a BUY.
iShares MSCI Hong Kong Index (EWH) remained steady, falling just 0.41%. EWH touched the 200-day moving average a few days ago and will likely test this level once again this week. EWH is a BUY.
Freeport McMoRan Copper & Gold Inc. (FCX) continued higher, tacking on 5.09%. FCX is stabilizing above its 200-day moving average after recently reporting a good quarter. FCX also announced the appointment of a new president at its Indonesia-based Grasberg mine in Papua province. This mine recently suffered a violent worker strike, but has been calm of late. FCX is a BUY.
Visa Inc. (V) dipped 0.37% last week. Visa announced that Facebook has renewed an agreement to continue using the CyberSource Payment Management Platform, a wholly owned subsidiary of Visa, for card payments, This is good news for Visa, as this agreement will keep an 800-million strong user-base utilizing services that it provides. V will report earnings on Feb 8. V is a BUY.
Ford Motor Co. (F) dipped 3.12% last week after delivering an earnings report that was below expectations. Ford reported an adjusted net income of $0.20/share, which was $0.05 below estimates. Although American sales were strong, overseas operations were more challenging. Overall, leading analysts expect automotive sales margins will be up year-over-year in 2012, so this sector should be good for investors. F remains well above its 50-day moving average and appears to be forming support at its (higher) 200-day moving average. F is a BUY

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